Boeing’s Outsourcing Secrecy Problem

Boeing in trouble for $7.5 million contract fraud

Earlier this week, the United States Department of Justice filed a civil lawsuit against The Boeing Company for alleged price gouging. According to the Justice Department, Boeing unlawfully inflated the price tag by $7.5 million for manufacturing a missile decoy system designed for the Air Force’s B-1 bomber.

The lawsuit states that Boeing failed to disclose it would outsource the manufacturing of the majority of parts needed to create the Towed Decoy System – a tool for intercepting missiles fired at the B-1 – during contract negotiations. The company claimed, according to the suit, that it would instead build the parts in-house at a greater cost than required for outsourcing. Consequently, Boeing charged more for something they outsourced for less, and in effect, defrauded the government for the price difference.

The lawsuit alleges that the Air Force would have renegotiated a substantially lower price tag for the Towed Decoy System had Boeing informed them they intended to purchase most components at a lower cost.

“It’s a significant amount and, of course, it’s all taxpayer money,” Assistant U.S. Attorney Lisa Palombo told The Associated Press. “We make it a priority to collect all taxpayer funds that are obtained through fraud. We don’t make exceptions for anyone, individuals or large companies.”

Evidence of Boeing’s actions originally came from whistle-blowers inside the organization that complained to their managers that the company was overcharging. The managers allegedly ignored the complaints and failed to tell their client, the Air Force.

Boeing spokesman Forrest Gossett told Business Week that the company disputes the allegations and believes it properly negotiated and fulfilled its contract with the Air Force.

But investigators from the Air Force’s Office of Special Investigations, the Defense Criminal Investigative Service, and auditors from the Defense Contract Audit Agency claim to have evidence of 140 incidents of over billing by Boeing, equating to $7.5 million in fraudulent charges. Under the False Claims Act, the government may recover up to three times the amount of the loss and enforce criminal penalties for each of the 140 incidents of fraud.

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